Preserving Privilege In Reinsurance Audits

Virtually every reinsurance treaty includes an audit clause, granting the reinsurer access to the ceding company’s records. Reinsurers routinely invoke the clause to conduct periodic audits and to monitor claims that are likely to cause significant losses to the reinsurer.

Allowing access to claims files, in particular, raises important issues of attorney client privilege and work product. A ceding company’s claims file will almost always contain privileged materials. The application of the age-old rules of privilege to a reinsurer’s audit rights is not always considered. But privilege issues warrant caution. This article discusses the applicability of privilege to reinsurer audits, the danger of waiving privilege, and a potential solution to satisfy both reinsurer and ceding company.